By Mike Colpitts
Homeowners with underwater mortgages or those who owe more on their homes than their properties are currently worth dropped in the 
third quarter in the U.S., according to real estate data firm CoreLogic. The decline, however, was marginal falling to 10.7-million residential homeowners, which is 200,000 less than the second quarter of 2011.
Another 2.4-million mortgage borrowers with homes, however, had less than 5% equity in their property demonstrating that a total of 27.1% of American homeowners with mortgages are underwater on their mortgages or near negative equity.
The state of Nevada had the highest volume of underwater mortgages with 58% of homes that have mortgages. Nevada also suffered the highest number of foreclosures until a new law making it a felony for banks and mortgage lenders to foreclose on a home without the proof of legal ownership went into effect Oct. 1st. Arizona placed second (47%), followed by Florida (44%), Michigan (35%) and Georgia (30%).
“Although slightly down, negative equity remains very high and renders many borrowers vulnerable when negative economic shocks occur such as job loss or illness,” said CoreLogic chief economist Mark Fleming. “The nearly $700 billion mortgage debt overhang has touched many corners of the market, and this overhang is holding back the recovery of the housing market and broader economy.”
The hardest hit five states, including Nevada, Arizona and Florida have a combined average underwater mortgage level of 41.4%. The other 45 U.S. states have a negative equity ratio average of only 17.6%, according to the CoreLogic study.
There are an estimated 22-million home mortgage borrowers in the country, and nearly two out of three have mortgage interest rates above 5%. Of those 10.7-million underwater or near negative equity, 6.3-million are without second mortgages or home equity lines of credit, and they have an average mortgage balance of $222,000.
Underwater homeowners are upside down on their mortgages an average of $52,000, which equals an average loan-to-value ratio of 131%. Negative equity for those with only first mortgages averages 18%, with 40% having 80 LTV or higher.
Mortgage holders with the highest levels of being underwater are more likely to walk-away from their mortgages, and are most commonly those who lack confidence in the housing marketplace recovering to levels where it once was so they can recover their position in home equity.